The Central Bank increased premiums on risk ratios for unsecured loans, which increased the burden on the bank’s capital when loans were issued. The higher it is, the more capital stock the bank needs. Additional fees allow you to save an additional amount of money that the bank can use in the future. For example, to cover your losses from overdue loans.
According to the new Central Bank requirements, surcharges will be applied to all loans with a full cost (TCP) of 25% or more (the full cost of the loan includes all customer service costs, including commissions and insurance costs – Gazeta). ru). In addition, the measure will affect Russians with a debt load indicator (PDN) of 50 or more, where the debtor has paid more than 50% of his income to pay off the debt. Until September 1, loans with a TIC of 35% or more and borrowers with a PTI above 80 were regulated.
According to the Central Bank, the new measures will affect 82 percent of credit card issuances and 66 percent of cash loans.
At the same time, the average premium level of new loans will increase from 0.21 to 0.89. But it’s still lower than 1.23 at the start of last year.
Why does the Central Bank apply additional fees?
According to the regulator’s data, in 2022, thanks to the measures of the Central Bank, banks released 617 billion rubles of the backlog of unsecured loans (5.8% of the portfolio excluding reserves). This helped support the industry and facilitated loan restructuring for borrowers affected by the sanctions. As of May 1, the banks’ capital reserves reached 132 billion rubles, and the loan portfolio reached 12.4 trillion rubles. However, as of June 1, the portfolio volume reached 12.6 trillion, and the number of borrowers with a high debt load gradually began to turn to banks. The Central Bank stated that the debt increase in July was the biggest in the last 12 months and realized at the level of 2 percent, while the annual growth rate was 13.3 percent as of August 1, 2023. According to the regulator, 64% of the loan portfolio now falls to borrowers who use more than half of their income to pay off debt. Loans given to borrowers with a debt load ratio above 80% constitute 32% of the portfolio.
According to the Central Bank, as of May 1, 2023, the total debt of Russians to loans exceeded 30 trillion rubles in the environment of delayed demand. According to the statistics of the Federal Enforcement Office, the number of non-payers in the first half of 2023 increased by 3.3 million to reach 17.7 million people. Well, One in eight Russians does not pay loans.
“The Central Bank of Russia is currently trying to cool the unsecured lending market in order to create a framework for over-indebted borrowers. After the Central Bank decision comes into effect, the market will become more conservative.
Banks will have to restructure their approach to lending based more on official confirmation of revenue,” said Anna Volkova, director of retail business development at Sinara Bank, explaining the need for new measures.
Who will be denied loans?
Associate Professor at the Department of World Financial Markets and Fintech, Russian University of Economics. GV Plekhanova Tatyana Belyanchikova emphasized that the tightening of the requirements of the Central Bank will seriously affect new borrowers.
“The measures previously only concerned customers with a very high debt load of over 80 percent, now these measures apply to all debtors with a debt load ratio of 50 percent. The gap between relatively prosperous and risky borrowers will widen. The economist noted that banks will more often refrain from lending to the latter.
According to Belyanchikova, some potential customers will perceive this negatively, but the stability of the banking sector will increase in the future.
Alexey Ashurkov, senior vice president of Renaissance Bank, acknowledged that banks will now increasingly refuse to lend to borrowers with more than 50 percent PTI. However, the expert stated that if there is a serious financing need, customers will still get loans, but under tighter conditions and outside the banking sector.
How much will the loans cost?
Yegor Lopatin, deputy director of financial institutions, said that in August-September the rates in the segment of unsecured loans will increase mainly due to the significant increase in the Central Bank’s key interest rate – 350 basis points, that is, up to 12% per year. Rating group of the NKR agency. If some banks have already hiked rates, others can wait for the rate decision at the meeting scheduled for September 15 and then adjust their rates. According to Volkova, interest rates will increase by 3-4 points after the Central Bank’s interest rate decision.
According to the Finuslugi credit index, as of August 24, the average rate of unsecured loans in Russia’s 20 largest retail banks exceeded 21%, while the average rate of secured loans rose to 19.4%.
“The increase in interest rates on risky loans may be more pronounced – up to 5-7 percentage points, because the marginal cost of the loan, which was a deterrent for banks, is now canceled,” said a representative of Bank Sinara.
What about the credit market?
Ashurkov said banks with high capital adequacy may not even change their lending policy, but the rest will have to reduce loans.
“Consumer loan growth will slow due to both higher interest rates and the tightening of regulations by the Central Bank of the Russian Federation. Sovcombank chief analyst Natalya Vashchelyuk noted that the issuance of unsecured consumer loans could return to last year’s summer-autumn levels.
Belyanchikova is confident that the Russians will wait until the last moment for the opportunity to use their loan funds on the same terms.
According to socialbites.ca at Otkritie Bank and the Ural Bank for Reconstruction and Development, borrowers’ demand for cash loans in the summer increased significantly – by 38%. VTB and Dom.RF Bank also recorded an increase in unsecured loan demand. Kirill Varentsov, vice-president of Dom.RF Bank, said that the Russians’ sense of uncertainty about the future has decreased, so they have started to apply for loans more actively. He added that the rate applied to them plays a decisive role for the borrower.
Plekhanov, an associate professor at the Russian University of Economics, said banks will try to find a middle ground between the need to create more cushions of safety and the opportunity to earn additional income from unsecured loans at higher rates.
“For a series of loans, we should expect banks to at least require formal collateral. But this will affect relatively large amounts in order to economically justify registration costs for banks, ”said Belyanchikova.
Vashchelyuk said that the Central Bank’s measures will affect the terms of new loans, so they should not lead to an increase in overdue debts. Artem Autlev, an analyst at Ingosstrakh-Investments Management Company, admitted that some citizens will still delay their loan payments due to rising prices and high interest rates on loans.